Analysis: Argentine debt investors may let law slide to reach deal

Tue Jun 17, 2014 5:44pm EDT
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By Daniel Bases

NEW YORK (Reuters) - Argentina's prospects for finally closing out its 12-year-old default on $100 billion of debt will depend on more political and legal maneuvering, a motivated U.S. judge and the fatigue of investors, now that it has lost an epic battle with holdout creditors in the U.S. courts.

Negotiating a new deal with the holdouts, who have fought to exercise their investor rights through the courts, potentially violates a provision specifically written to stop anyone getting a better deal than bondholders who participated in two prior restructurings in 2005 and 2010.

"Most people are not going to do anything about it because once the issue is settled the market is likely to rally," said Varun Gosain, portfolio manager at New York-based Constellation Capital Management with investments in Argentine assets and participated in the exchanges, referring to the value of the bonds.

"But just like there are a small number of people who went after the initial restructuring terms, there will be a small number of people who will go after this claim," said Gosain, referring to any negotiated settlement. The exchange bondholders hold about $24 billion in debt that is in jeopardy of coming under a technical default.

The U.S. Supreme Court on Monday declined to hear Argentina's appeal seeking to overturn an order to pay sovereign creditors $1.33 billion, setting off a scramble in Buenos Aires on what it can do now given its legal options are exhausted.

President Cristina Fernandez vowed on Monday night that Argentina would not again default on its bonds and that it would find a way to pay exchange bondholders, the 93 percent of investors who accepted the onerous terms of Argentina's sovereign restructuring.

Exchange bondholders received between 25 and 29 cents on the dollar for their defaulted bonds. By itself, these deals are generally considered among the worst restructurings for investors in the history of sovereign defaults.

Axel Kicillof, Argentina's economy minister, is set to unveil Tuesday afternoon how Argentina plans to make its bond payments to exchange bondholders.   Continued...

Argentine stockbrokers work on the floor of the Buenos Aires Stock Exchange June 16, 2014. REUTERS/Enrique Marcarian